Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Permanent Approval of a Pilot Program Relating to Access to the Exchange's Hybrid Automatic Execution System, 18788-18789 [E6-5365]

Download as PDF 18788 Federal Register / Vol. 71, No. 70 / Wednesday, April 12, 2006 / Notices analyses the support TAD decision and the effects of adopting a TAD system on design of Yucca Mountain surface facilities. In addition to the TAD presentations, one or more presentations on other topics are expected, including a review of infiltration data. Time will be set aside at the end of the day for public comments. Those wanting to speak are encouraged to sign the ‘‘Public Comment Register’’ at the check-in-table. A time limit may have to be set on individual remarks, but written comments of any length may be submitted for the record. Transcripts of the meetings will be available on the Board’s Web site, by email, on computer disk, and on a library-loan basis in paper format from Davonya Barnes of the Board’s staff, no later than June 1, 2006. A block of rooms has been reserved for meeting participants at the Hilton Tysons Corner. When making a reservation, please state that you are attending the Nuclear Waste Technical Review Board meeting. Reservations should be made by April 17, 2006, to ensure receiving the meeting rate. For more information, contact Karyn Severson, NWTRB External Affairs; 2300 Clarendon Boulevard, Suite 1300; Arlington, VA 22201–3367; 703–235– 4473; fax 703–235–4495. Dated: April 5, 2006. William D. Barnard, Executive Director, Nuclear Waste Technical Review Board. [FR Doc. 06–3469 Filed 4–11–06; 8:45 am] BILLING CODE 6820–AM–M SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice wwhite on PROD1PC61 with NOTICES Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold the following meeting during the week of April 10, 2006: A Closed Meeting will be held on Thursday, April 13, 2006 at 10 a.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters may also be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (4), (5), (7), (8), (9)(B), and (10) and 17 CFR 200.402(a)(3), (4), VerDate Aug<31>2005 17:42 Apr 11, 2006 Jkt 208001 (5), (7), (8), (9)(ii) and (10) permit consideration of the scheduled matters at the Closed Meeting. Commissioner Nazareth, as duty officer, voted to consider the items listed for the closed meeting in closed session, and determined that no earlier notice thereof was possible. The subject matter of the Closed Meeting scheduled for Thursday, April 13, 2006 will be: Formal orders of investigation; Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings of an enforcement nature; Regulatory matter concerning a financial institution; Adjudicatory matters; and Post-argument discussion. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551–5400. Dated: April 7, 2006. Jill M. Peterson, Assistant Secretary. [FR Doc. 06–3544 Filed 4–10–06; 11:31 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53603; File No. SR–CBOE– 2005–112] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Permanent Approval of a Pilot Program Relating to Access to the Exchange’s Hybrid Automatic Execution System April 5, 2006. On December 30, 2005, the Chicago Board Options Exchange, Incorporated (‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 to make permanent the pilot program in CBOE Rule 6.13 relating to access to the Exchange’s automatic execution system. The proposed rule change was published for comment in the Federal Register on March 6, 2006.3 The Commission received no comments on 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 53377 (February 27, 2006), 71 FR 11250. 2 17 PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 the proposal. This order approves the proposed rule change. The pilot program the Exchange seeks to make permanent was initiated in July 2004, was subsequently extended twice, and is currently scheduled to expire on October 12, 2006.4 Under the pilot program, pursuant to CBOE Rule 6.13(b)(i)(C)(iii), orders from market makers and specialists on an options exchange (‘‘options Market Makers’’) and stock exchange specialists,5 with respect to their specialty securities, are eligible for automatic execution through the Exchange’s Hybrid Trading System (‘‘Hybrid’’), subject to a 15-second limitation 6 on orders on the same side of the market in an options class for an account or accounts of the same beneficial owner. The Exchange believes that the pilot program has been successful and has helped to contribute to the maintenance of efficient markets and to attract volume to the Exchange. After careful consideration, the Commission finds that the proposed rule change is consistent with the requirements of Section 6 of the Act 7 and the rules and regulations thereunder applicable to a national securities exchange.8 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,9 which requires, among other things, that the rules of an exchange be designed to prevent fraudulent and manipulative acts and 4 See Securities Exchange Act Release Nos. 50005 (July 12, 2004), 69 FR 43032 (July 19, 2004) (approving the pilot program); 51030 (January 12, 2005), 70 FR 3404 (January 24, 2005) (extending the pilot program until October 12, 2005); and 52494 (September 22, 2005), 70 FR 56943 (September 29, 2005) (extending the pilot program until October 12, 2006). 5 By its terms, CBOE Rule 6.13(b)(i)(C)(iii) applies to orders eligible for submission pursuant to CBOE Rule 6.13(b)(i)(C)(ii), which relates to options Market Makers and certain stock exchange specialists. 6 As allowed under CBOE Rule 6.13(b)(i)(C)(iii), the Exchange’s floor procedure committees determined to shorten to five seconds (from 15 seconds) the period required between entry of multiple market maker orders (including non-CBOE market maker orders) on the same side of the market in an option class for an account or accounts of the same beneficial owner using Hybrid. This change went into effect on July 18, 2005 and was announced to the Exchange’s membership via Regulatory Circular RG05–61. The Exchange clarified that such reduction in the time period to five seconds applies to all of the market participants subject to the pilot program under CBOE Rule 6.13(b)(i)(C)(iii). Telephone conversation between Jennifer M. Lamie, Managing Senior Attorney, Exchange, and Kim M. Allen, Special Counsel, Division of Market Regulation, Commission, on March 29, 2006. 7 15 U.S.C. 78f. 8 In approving this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 9 15 U.S.C. 78f(b)(5). E:\FR\FM\12APN1.SGM 12APN1 Federal Register / Vol. 71, No. 70 / Wednesday, April 12, 2006 / Notices practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission believes that prohibiting members from causing the entry into Hybrid of more than one order from options Market Makers or stock exchange specialists for the same beneficial account within a maximum 15-second period should help reduce the risk of exposure of CBOE market makers. The Commission notes that the 15-second restriction set forth in the rule provides a sufficient period to allow CBOE market makers to change their quotations following an execution, without placing an undue burden on market participants seeking to execute transactions on the Exchange.10 The Commission further notes that market participants subject to the 15-second restriction will still be permitted to send orders to the Exchange for execution through the Intermarket Option Linkage pursuant to the terms of the Plan for the Purpose of Creating and Operating an Intermarket Option Linkage. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,11 that the proposed rule change (SR–CBOE–2005– 112) is approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.12 Nancy M. Morris, Secretary. [FR Doc. E6–5365 Filed 4–11–06; 8:45 am] on November 1, 2005, the American Stock Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On March 27, 2006, the Exchange filed Amendment No. 1 to the proposed rule change.3 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Amex Rule 3 (‘‘General Prohibitions and Duty to Report’’) by adding a new paragraph (i) to prohibit a member or member organization from splitting trading interest into multiple orders for any purpose other than seeking the best execution of the entire order. The text of the proposed rule change, as amended, appears below. Additions are in italics. * * SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53597; File No. SR–Amex– 2005–112] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change Relating to the Prohibition of Trade Shredding by Members April 4, 2006. wwhite on PROD1PC61 with NOTICES Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, as amended, (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that 10 The Commission notes that the Exchange may not take punitive action against any non-member options market maker or stock exchange specialist who submits an order to a CBOE member for entry into Hybrid in the event that the CBOE member violates CBOE Rule 6.13(b)(i)(C)(iii). 11 15 U.S.C. 78s(b)(2). 12 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(l). 2 17 CFR 240. 19b–4. 17:42 Apr 11, 2006 Jkt 208001 * * * (a) through (h)—no change. (i) It shall be inconsistent with just and equitable principles of trade for a member or member organization to split trading interest into multiple orders for any purpose other than seeking the best execution of the entire order. BILLING CODE 8010–01–P VerDate Aug<31>2005 * Rule 3. General Prohibitions and Duty To Report * * * * II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Amex included statements concerning the purpose of, and basis for, the proposed rule change, as amended, and discussed any comments it received on the proposed rule change, as amended. The text of these statements may be examined at the places specified in Item IV below. The Amex has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. 3 See Form 19b–4 dated March 27, 2006 (‘‘Amendment No. 1’’). Amendment No. 1 replaced the original filing in its entirety. PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 18789 A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose ‘‘Trade shredding’’ is the practice of splitting large customer orders for securities into multiple smaller orders for the primary purpose of increasing the receipt of market data revenue by market centers that allow or encourage this practice. The practice is based on the fact that, as a result of the manner in which market data revenues are calculated, market centers can derive a greater share of market data revenue by increasing the number of trades they report to the consolidated tape. For example, Network B, which disseminates consolidated market information on securities listed on the Amex, allocates net income based solely on the number of trades reported by a self-regulatory organization (‘‘SRO’’), no matter how small each trade is. The Amex has expressed its serious concern in the past over the practice of trade shredding. The Exchange believes that trade shredding is incompatible with just and equitable principles of trade. Among other things, it constitutes clearly misleading trade reporting in that it presents a false impression regarding the nature and extent of bona fide trading activity. Some SROs provide incentives for trade shredding by sharing the increased market data revenue that results from the practice with the market participants, including non-members, who send in orders for execution. Such revenue sharing arrangements may create a conflict of interest between the customers and the market participants handling their orders if, for example, an order is routed to a market center based on such revenue incentives instead of the obligation to obtain best execution for the order. The Commission has requested that each SRO adopt rule changes that would prohibit its members from trade shredding. Although the Amex does not rebate revenues from tape reporting to members or non-members and provides no other incentive for its order providers to engage in trade shredding on orders sent to the Exchange, the Amex is responding to the Commission’s request by adding a new paragraph (i) to Amex Rule 3 (‘‘General Prohibitions and Duty to Report’’). This new paragraph would prohibit a member or member organization from splitting trading interest into multiple orders for any purpose other than seeking the best execution of the entire order. E:\FR\FM\12APN1.SGM 12APN1

Agencies

[Federal Register Volume 71, Number 70 (Wednesday, April 12, 2006)]
[Notices]
[Pages 18788-18789]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-5365]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53603; File No. SR-CBOE-2005-112]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Permanent Approval of a Pilot Program 
Relating to Access to the Exchange's Hybrid Automatic Execution System

April 5, 2006.
    On December 30, 2005, the Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') filed with the Securities and 
Exchange Commission (``Commission'') a proposed rule change pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ to make permanent the pilot program in 
CBOE Rule 6.13 relating to access to the Exchange's automatic execution 
system. The proposed rule change was published for comment in the 
Federal Register on March 6, 2006.\3\ The Commission received no 
comments on the proposal. This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 53377 (February 27, 
2006), 71 FR 11250.
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    The pilot program the Exchange seeks to make permanent was 
initiated in July 2004, was subsequently extended twice, and is 
currently scheduled to expire on October 12, 2006.\4\ Under the pilot 
program, pursuant to CBOE Rule 6.13(b)(i)(C)(iii), orders from market 
makers and specialists on an options exchange (``options Market 
Makers'') and stock exchange specialists,\5\ with respect to their 
specialty securities, are eligible for automatic execution through the 
Exchange's Hybrid Trading System (``Hybrid''), subject to a 15-second 
limitation \6\ on orders on the same side of the market in an options 
class for an account or accounts of the same beneficial owner. The 
Exchange believes that the pilot program has been successful and has 
helped to contribute to the maintenance of efficient markets and to 
attract volume to the Exchange.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release Nos. 50005 (July 12, 
2004), 69 FR 43032 (July 19, 2004) (approving the pilot program); 
51030 (January 12, 2005), 70 FR 3404 (January 24, 2005) (extending 
the pilot program until October 12, 2005); and 52494 (September 22, 
2005), 70 FR 56943 (September 29, 2005) (extending the pilot program 
until October 12, 2006).
    \5\ By its terms, CBOE Rule 6.13(b)(i)(C)(iii) applies to orders 
eligible for submission pursuant to CBOE Rule 6.13(b)(i)(C)(ii), 
which relates to options Market Makers and certain stock exchange 
specialists.
    \6\ As allowed under CBOE Rule 6.13(b)(i)(C)(iii), the 
Exchange's floor procedure committees determined to shorten to five 
seconds (from 15 seconds) the period required between entry of 
multiple market maker orders (including non-CBOE market maker 
orders) on the same side of the market in an option class for an 
account or accounts of the same beneficial owner using Hybrid. This 
change went into effect on July 18, 2005 and was announced to the 
Exchange's membership via Regulatory Circular RG05-61. The Exchange 
clarified that such reduction in the time period to five seconds 
applies to all of the market participants subject to the pilot 
program under CBOE Rule 6.13(b)(i)(C)(iii). Telephone conversation 
between Jennifer M. Lamie, Managing Senior Attorney, Exchange, and 
Kim M. Allen, Special Counsel, Division of Market Regulation, 
Commission, on March 29, 2006.
---------------------------------------------------------------------------

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6 of the Act 
\7\ and the rules and regulations thereunder applicable to a national 
securities exchange.\8\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\9\ 
which requires, among other things, that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and

[[Page 18789]]

practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Commission believes that prohibiting members from 
causing the entry into Hybrid of more than one order from options 
Market Makers or stock exchange specialists for the same beneficial 
account within a maximum 15-second period should help reduce the risk 
of exposure of CBOE market makers. The Commission notes that the 15-
second restriction set forth in the rule provides a sufficient period 
to allow CBOE market makers to change their quotations following an 
execution, without placing an undue burden on market participants 
seeking to execute transactions on the Exchange.\10\ The Commission 
further notes that market participants subject to the 15-second 
restriction will still be permitted to send orders to the Exchange for 
execution through the Intermarket Option Linkage pursuant to the terms 
of the Plan for the Purpose of Creating and Operating an Intermarket 
Option Linkage.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f.
    \8\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ The Commission notes that the Exchange may not take 
punitive action against any non-member options market maker or stock 
exchange specialist who submits an order to a CBOE member for entry 
into Hybrid in the event that the CBOE member violates CBOE Rule 
6.13(b)(i)(C)(iii).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-CBOE-2005-112) is approved.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Nancy M. Morris,
Secretary.
[FR Doc. E6-5365 Filed 4-11-06; 8:45 am]
BILLING CODE 8010-01-P
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